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Press Release of Banco de Portugal on the October 2016 issue of the Economic Bulletin

Banco de Portugal publishes today the October 2016 issue of the Economic Bulletin. The Bulletin presents an analysis of developments in the Portuguese economy in the first half of 2016 and updates macroeconomic projections for 2016.

The Portuguese economy in the first half of 2016

In the first half of 2016, Portugal’s Gross Domestic Product (GDP) grew 0.9 per cent, in volume, in year-on-year terms, and 0.5 per cent compared with the second half of 2015. Regarding developments in GDP per capita, this variable – which has become particularly relevant given the significant demographic changes that have occurred in Portugal in the past few years – is likely to have increased by 1.3 per cent in the first half of 2016, in year-on-year terms (2.1 per cent in 2015).

Against a background of employment growth and marked decrease in unemployment, labour productivity has been relatively stable in the last quarters, due to a strong cumulative fall in investment in recent years. Nevertheless, production factors have continued to be increasingly oriented to those economic sectors more exposed to international competition. Furthermore, the human capital level of the workforce has improved gradually and credit flows have been channelled to companies with better risk profile.

The growth pace of economic activity in Portugal continues to be lower than in previous business cycles, due to high public and private indebtedness, adverse demographic developments, and reduced external demand dynamism. The exceptionally accommodative stance of the Eurosystem’s monetary policy has contributed to better financing conditions in Portugal, but this is unlikely to continue indefinitely.

The current environment offers a unique opportunity to anchor the expectations of both domestic and external economic agents, in a way that promotes macroeconomic stability and sustainable economic growth. The structural correction of accumulated macroeconomic imbalances requires a predictable institutional and tax framework, the sustained reduction of the public debt levels, and the pursuance of structural reforms fostering investment, innovation and factor mobility.

Projections for the Portuguese economy in 2016

This Economic Bulletin also updates the economic projections for 2016, which point to a deceleration in activity. GDP is estimated to grow 1.1 per cent in 2016, down from 1.6 per cent in 2015, reflecting less buoyant domestic demand and, in particular, investment. This represents a downward revision of the projections made in the June issue of the Economic Bulletin by 0.2 percentage points (p.p.). After two years in which GDP developments were similar to the euro area average, the current projection points to a 0.6 p.p. real divergence of the Portuguese economy in 2016.

Goods and services exports are projected to increase 3.0 per cent in 2016, down from 6.1 per cent in 2015. The loss of momentum of goods and services exports is likely to contribute to a deceleration in external demand, a strong fall in sales to extra-euro area markets, such as Angola and to a lesser extent China, as well as adverse developments in energy exports. Nevertheless, the dynamism of non-energy exports is noteworthy – as their increase in 2016 is expected to be higher than in 2015 – as well as the strong growth of tourism exports.

Private consumption is projected to decelerate from 2.6 per cent in 2015 to 1.8 per cent in 2016, therefore maintaining a growth pace above that of GDP.

Gross fixed capital formation (GFCF) is projected to decline by 1.8 per cent, after increasing 4.5 per cent in 2015. These developments reflect a sharp fall in public investment, partly explained by base effects taken into account in the assumptions underlying the projection, a drop in residential investment, and a slight reduction in corporate GFCF.

The Portuguese economy’s funding capacity, as measured by the combined current and capital accounts, is projected to correspond to 1.3 per cent of GDP in 2016. This represents a 0.4 p.p. reduction compared with 2015.

Inflation, as measured by the Harmonised Index of Consumer Prices (HICP), is expected to stand at 0.7 per cent in 2016, corresponding to an increase of 0.2 p.p. compared with 2015. The value estimated for inflation remained unchanged from the projection of the June Economic Bulletin.

Special issue: Portuguese companies in international trade

The recent developments in Portuguese exports are the theme of this Economic Bulletin’s special issue, entitled: Portuguese companies in international trade: some facts about age, prices and markets.

The article identifies facts about exporters and importers in Portugal since the beginning of the 2000s to detect structural changes favouring positive goods and services balances.

This Economic Bulletin also includes the following boxes:

Box 2.1 | The economic impact of the United Kingdom’s withdrawal from the European Union (Brexit)

Box 3.1 | Recent developments in housing prices in Portugal in light of its macroeconomic fundamentals

Box 3.2 | Early repayment of housing credit in 2015

Box 4.1 | The corrective arm of the Stability and Growth Pact and its application to Portugal

Box 4.2 | Update of minimum medium-term objectives for the period 2017-2019: the Portuguese case

Box 5.1 | Recent developments in real GVA per capita in Portugal

Box 5.2 | Characterising very long-term unemployment in Portugal

Box 5.3 | Productivity and job reallocation in Portugal

Box 6.1 | Microeconomic evidence of corporate investment decisions


Lisboa, 7 de outubro de 2016